China Stocks Start April With Bang, Bonds Slide After Data Boost

(Bloomberg) -- Shanghai’s equity benchmark closed at the highest since May and the Hang Seng Index entered a bull market, as data suggested the Chinese economy is improving. Yields on 10-year government bonds jumped the most since 2017.

The Shanghai Composite Index rose 2.6 percent and out of the 3,000-3,100 range it has been largely stuck in for a month. Small caps also continued their strong run, with the ChiNext gauge jumping 4 percent, building on its world-beating 35-percent rally in the first quarter and erasing all of its loss from last year. The yield on sovereign debt due in a decade rose 8 basis points to 3.15 percent.

China Stocks Start April With Bang, Bonds Slide After Data Boost

China’s manufacturing purchasing managers index rose to 50.5 in March, the biggest increase since 2012 and beating economists’ estimates, according to data released Sunday. The mood was bolstered Monday morning as the Caixin manufacturing index also signaled expansion.

“The sharp rebound of PMI for medium and small enterprises show that supporting measures from the government such as VAT cut may start to take effect,” wrote Tommy Xie, an economist at Oversea-Chinese Banking Corp. “Looking at the details from the PMI, the recovery is beyond the seasonal pattern.”

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After a rout in 2018, Chinese equities are rebounding strongly this year and outrunning other markets as the government pledges to support growth and trade talks with the U.S. show signs of progress. China’s Vice Premier Liu He is due for talks in Washington following another round of negotiations in Beijing last week.

“The policy easing since last year is starting to have an effect,” said Khoon Goh, head of Asia research at Australia & New Zealand Banking Group. “This will buoy risk sentiment and help support the yuan as well as Asian currencies generally. With markets already pricing in a U.S.-China trade deal, we need to see further improvement in the economic data for the rally to be sustained.”

The yuan was little changed at 6.7131 per dollar following its 0.4 percent advance on Friday, its biggest gain in a month. The yuan is one of the strongest currencies in Asia this year, rising 2.5 percent, just behind the Thai baht’s 2.6 percent rally.

In Hong Kong, the Hang Seng Index rose 1.8 percent, the most since Jan. 15, taking its advance from an Oct. 30 low to 20 percent.

“China acted much earlier than policymakers in other major economies to announce stimulus policies and we’re starting to see some initial results now with March PMI returning to expansionary territory,” said Linus Yip, a strategist with First Shanghai Securities Ltd.

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“This is a testament to the rationale of China and Hong Kong stock gains we’ve seen this year, and investors will be more willing to put more money in stocks,” Yip said. “The strength in stocks will sustain into the second quarter.”

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